NEW DELHI: When Dewan Housing Finance Corporation Ltd (DHFL) announced it would stop accepting fresh inflows in fixed deposits (FDs) and put premature withdrawals on hold, there was panic among retail investors.
While the regulators are already closely monitoring the DHFL case, experts claim that some caution is required before going for fixed deposits, especially from Non-Banking Financial Companies (NBFCs). “Make sure that the returns are realistic, typically 2-3 per cent more than a bank fixed deposit of similar tenure. But if the returns are much higher, that is a red flag. Unusually high returns on a company FD comes with greater risk,” says Navin Chandani, chief business development officer, financial products, BankBazaar.com.
According to the National Housing Bank, there are 18 housing finance companies, including DHFL, that are allowed to accept public deposits. These housing finance companies have raised Rs 1.22 lakh crore from public deposits as on March 2018, as per Reserve Bank of India’s Trends and Progress in Banking report prepared for 2018.
The RBI states that besides these housing finance companies, 89 non-banking financial companies have a licence to raise money from the public through fixed deposits. These have raised Rs 32,600 crore in FDs as on September 2018.
While DHFL said it would allow withdrawals in case of medical emergencies, for retail investors, however, such decision is enough to upset their whole financial planning.“I was planning to buy a house and was banking on the FD maturity to pay the cash component. However, that seems to be difficult now. I am still pursuing the case with the company,” said Rohit Dubey, an investor with DHFL. And this may have an effect on other HFCs also.
“Most of the time, investors do not review their portfolio. Market is changing so quickly that the stock that looked good at one point of time might be totally bad another time. About four to five years ago, who had thought that DHFL or even IL&FS will sink? Investors must remain cautious when such negative news comes. While there is no need for panic reaction, keeping a close watch always helps,” said a senior official from Axis Bank, adding that most of the banks have received calls from customers, asking if their FDs were safe.